Network International Holdings PLC

Network International Holdings PLC (LON: NETW) is an FTSE 250 listed technology payment solutions provider to merchants and financial institutions.

Rationale for Valuation – SPECULATIVE BUY at GBX 262.70

• Growth Drivers: NETW’s Saudi Arabia market entry progressed well with the launch of new processing customer signed, while the exit of non-core investments in Transguard Cash and Mercury shall drive growth prospects.
• Platform for Growth: NETW reported strong revenue growth, solid EBITDA growth, positive momentum in new business, and robust trading of DPO business to generate incremental value for shareholders.
• Technical Indicator: From a technical standpoint, 14-day RSI (~42.12) is in the oversold territory, while the stock price is hovering close to the lower standard deviation of the Bollinger Bands.
• Stronger Profitability: In H1 FY21, NETW’s gross margin and net margin were higher than the industry median of 69.5% and 6.4%, respectively.

Key Risks

• Macroeconomic Uncertainty: As the Federal Meeting has signalled the interest rates hike and monetary policy tightening, it can keep the equity market under pressure.
• Subdued UK Macroeconomic Indicators: The UK Composite PMI fell marginally to 53.4 in January 2022 from 53.6 in December 2021, while the UK consumer price inflation breached a nearly 30-year high of 5.4% in the 12 months to December 2021.

Trading Update (for the year ended 31 December 2021, as of 20 January 2022)

 (Source: Company Website)

• Top-line Growth: During FY21, total revenue jumped 21% against FY20 and remained ahead of consensus.
• Operational Growth: The underlying EBITDA is expected to surpass the market expectations on the back of a positive contribution from DPO Group.
• Strong Momentum: The new merchant signings sustained record growth and signed 17 new financial institution customers.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion 

NETW demonstrated excellent progress in FY21 and refocused its strategy to drive accelerated growth and innovation. It witnessed strong momentum in the UAE market with a rebound in international tourism and consumer spending. In a nutshell, it is progressing well to achieve the target of over 20% revenue growth in FY22. The stock made a 52 week High and Low of GBX 459.90 and GBX 251.30, respectively.

Based on strong momentum, operational growth, supportive technical standpoint, and positive valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Network International Holdings PLC at the closing market price of GBX 262.70 (as of 31 January 2022), with a lower double-digit upside potential based 36.75x Price/Earnings (approx.) on FY21E Earnings Per Share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit NETWking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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